Business succession planning.

Business succession planning is the legal work of deciding, in writing and in advance, who will own your company when an owner dies, becomes disabled, retires, divorces, or simply wants out, and on what terms the ownership will change hands. For most closely held Oregon companies, the core document is a Buy-Sell Agreement. Michael Paluska is a business succession attorney in Salem, Oregon who drafts these agreements and plans ownership transitions for companies throughout the Willamette Valley.

What Oregon law says about transferring ownership

Oregon law does not plan your succession for you. It sets default rules, and the defaults are rarely what owners would choose.

For corporations, ORS 60.167 allows the Articles of Incorporation, Bylaws, or agreements among shareholders to restrict the transfer of shares, including a requirement that a departing shareholder first offer the shares to the corporation or the remaining shareholders. The statute has a catch that surprises people: the restriction must be noted conspicuously on the Stock Certificates, or it is not enforceable against a buyer who had no knowledge of it.

For limited liability companies, ORS 63.249 makes a membership interest freely assignable unless the Articles of Organization or the Operating Agreement provide otherwise. The person who receives the interest gets only the economic rights, meaning distributions and allocations of profit and loss. They do not get a vote and cannot participate in management unless the members admit them. Without planning, that default can leave a surviving spouse holding an interest with no say in the company, or leave the remaining owners running a company alongside an economic stakeholder they never chose.

A Buy-Sell Agreement replaces those defaults with terms the owners actually agreed to.

What a Buy-Sell Agreement covers

A Buy-Sell Agreement is a contract among the owners of a company, and often the company itself, that states what happens to an owner’s interest when a triggering event occurs. The common triggers are death, disability, retirement, divorce, deadlock between owners, and an owner who simply wants to sell and move on. The agreement names who has the right or the obligation to buy, how the price will be determined, and how the purchase will be paid.

The best time to sign a Buy-Sell Agreement is before anything happens, while every owner is healthy, the relationships are good, and no one knows which side of the table they will eventually be on. That is when owners negotiate fair terms. Michael drafts these agreements in both situations: before a triggering event, as planning, and after one has already occurred, when the owners need to document a transition that is now unavoidable. The first is easier and less expensive. Both are common.

Cross-purchase versus redemption

Every Buy-Sell Agreement is built on one of two basic structures, or a combination of the two.

Cross-purchase

The remaining owners personally buy the departing owner’s interest. The company is not the buyer. Each remaining owner pays their share of the purchase price and receives a proportional piece of the departing owner’s interest.

Redemption

The company itself buys back the departing owner’s interest. The remaining owners do not write personal checks; the company funds the purchase, and the remaining owners end up with a larger percentage of a company that now holds fewer outstanding interests.

The right structure depends on how many owners there are, how the purchase will be funded, and the tax consequences of each path, which is where your accountant comes in. Some agreements use a wait-and-see approach that lets the owners choose between the two structures when the trigger actually occurs. Michael walks through the options with you and your accountant before drafting, so the structure fits both the ownership picture and the tax picture.

What Paluska Law does, and what Michael refers out

Michael handles the business side of succession planning. The engagement typically covers the Buy-Sell Agreement itself, the amendments to the Operating Agreement or Bylaws that make the transfer terms enforceable, the transfer restriction language ORS 60.167 requires on the Stock Certificates, and the documents that move ownership when a transfer actually happens.

Succession planning touches two other professions, and Michael works with both rather than pretending to cover them.

Estate planning attorneys

An owner’s succession plan and estate plan have to match. A Buy-Sell Agreement that says one thing while a will or trust says another is a lawsuit waiting for a funeral. The relationship runs in both directions: sometimes Michael meets with a client first and sends them to an estate planning attorney to get their estate plan done, and sometimes an estate planning attorney finishes a client’s estate plan and sends them to Michael for the business succession work. Either order works. What matters is that the two plans are drafted to agree with each other.

Your accountant

Cross-purchase and redemption structures carry different tax consequences, and the purchase price formula in a Buy-Sell Agreement has tax consequences of its own. The planning meeting with you, Michael, and your accountant happens before drafting begins, exactly as it does in Michael’s formation and business sale work. For succession planning this early meeting is especially important, because the structure chosen at the start is difficult to unwind later.

One type of succession work Michael refers out entirely. Some Buy-Sell Agreements are funded with life insurance, where a policy on each owner’s life supplies the money to buy out that owner’s interest at death. Michael determines at the very beginning of an engagement whether life insurance funding is what the plan needs. If it is, he refers the entire matter to an attorney who concentrates on insurance-funded succession planning and is no longer involved. Being clear about that up front saves clients time and money.

Who this is built for

Business succession planning at Paluska Law is built for closely held Oregon companies: family businesses in Salem and Keizer preparing to pass the company to the next generation, Willamette Valley farm operations where the land and the business both have to transfer, professional practices with two or three owners who need a plan for the first departure, and long-standing partnerships whose owners are approaching retirement age. If your company has more than one owner and no written agreement about what happens when one of you leaves, this page is describing you.

What working with Paluska Law looks like

Pricing

Business succession planning is not flat-fee work. Each succession is unique to the business and to what the owners need, so the scope varies too much for a single price to be honest. Michael handles pricing here the way he handles his other non-flat-fee work: he evaluates the work first, then gives you an estimate before the work begins. You will know the expected cost at the end of the first meeting, not at the end of the engagement.